Spotlight: Econ Op-eds in Summary (Week ended 06th January '21)
1. Three formidable challenges in 2021: Containing COVID, debt repayment and fiscal deficits
By: Nimal Sanderatne
· Containing COVID is something many countries have struggled with. Achieving the right balance between containing the virus and relaxing restrictions for economic activity to take place is a formidable challenge. However, effectively containing the pandemic would be a precondition for achieving the potential growth of over 4 percent for this year.
· Repaying foreign debt is the most serious economic challenge we face this year. However, the government and other authorities are confident that this challenge can be met by either commercial or bilateral borrowings, foreign investments or potential facilities from multilateral agencies.
· The fiscal deficit is also likely to remain at an elevated level of 9% of GDP or more this year, weakening the country’s ability to recover. A comprehensive programme for enhancing revenue and the effective implementation of development projects is required to achieve fiscal stabilization which would be a prerequisite for achieving economic and social development.
2. MMT: What’s wrong with printing money
By: Sumanasiri Liyanage
· Recently, well known economists in Sri Lanka have criticized the government’s monetary policy alleging that CBSL, while distancing itself from inflation-oriented policies has begun to follow closely the policy framework that derived from the main tenets of Modern Monetary Theory (MMT).
· MMT posits that a continuous increase in money printing through deficit finance after achieving full employment would generate an inflationary pressure and that inflationary pressure may occur if increased government expenditure focuses on elite projects and highly skilled employment.
· Thus, if a country like Sri Lanka adopts deficit financing and printing money in a crisis situation, it is imperative such policies should be accompanied by import restrictions, proper direction of Government expenditure and increase of direct taxation. Otherwise, the main criticism against the MMT, that it neglects inflationary pressures, could materialize.
(Compiled by: Chayu Damsinghe, Travis Gomez & Promodhya Abeysekara)
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